Cuts Meet a Culture of Spending at Condé Nast

With caviar and $1,000 nightly expense limits, cost-cutting has not been the same as at other publishers.

STEPHANIE CLIFFORD

At Condé Nast, it is consultants versus car service.

A three-month McKinsey & Company project advising the publisher how to reduce costs is drawing to a close, and several magazines have been told to cut about 25 percent from their budgets. The company’s editors and publishers have already been under pressure to reduce costs this year, as advertising has plunged, and Condé Nast has closed two magazines in 2009, Domino and Condé Nast Portfolio.

But cost-cutting at Condé Nast is not quite like cost-cutting at other publishers. For example, on Oct. 13, the men’s magazine GQ will host a party in Washington to promote its list of powerful capital players, to appear in its November issue. The party is upscale: it will be held at the 701 Restaurant, known for its caviar and live piano music.

That is not the only expense involved. Several editorial employees will travel from New York for the evening. And they received an e-mail message recently reminding them to limit their expenses for the night — to $1,000 a person.

That culture of spending at Condé Nast explains some of the fascination with the place, which incites a mix of envy and scorn among employees at other magazines. Condé Nast’s top editors and publishers have drivers on call, staff members can be reimbursed for $15 a day for lunches they order in, and even freelance writers stay at hotels like the W when they are on assignment.

Those perks would be unremarkable at any investment bank or law firm, at least before the recession. But magazine companies other than Condé Nast have become grim places to work in recent years.

Time Inc. outlined layoffs of 600 employees last October, almost all of which were completed by the end of last year, Dawn Bridges, a spokeswoman for Time Inc., said in an e-mail message. The company has also put strict limits on expense accounts.

Hearst laid off some employees at the end of last year. And BusinessWeek, as it tries to find a buyer, has proposed a 20 percent staff layoff, along with cutting costs on art and illustrations, research, marketing and events.

Now Condé Nast is finally making some serious changes to its business, and life inside the 4 Times Square headquarters is about to change — a little.

“They’ve been shielded a little bit,” said Audrey Siegel, executive vice president and director of client services at the media firm TargetCast tcm. “But I think Condé Nast will feel it now.”

Teams of McKinsey consultants have been in the Condé Nast headquarters for the last three months, meeting with editors, publishers and other executives to review how they spend their money. Their recommendations are in: In addition to the overall cost cuts of about 25 percent, budgets for 2010 must assume that sales will be flat, said several executives, who asked not to be identified because they were not authorized to discuss the issue. The magnitude of the cuts was first reported in The New York Observer.

Some magazines are subject to different rules, including The New Yorker, where the editorial side is exempt from cutbacks.

It is up to the publishers and editors how to reduce their budgets. It is unlikely that prominent editors like Anna Wintour of Vogue or Graydon Carter of Vanity Fair will cancel their town-car service: their magazines sell luxury, and Ms. Wintour’s swiping her 30-day MetroCard and jostling with Times Square commuters would hardly enhance that position.

Executives said there were some obvious places where they could cut, like contracts with contributors. (That is one explanation for the company’s letting details of the McKinsey process leak, one executive suggested — it allows Condé Nast to blame the consultants for budget reductions and renegotiate contracts with well-known photographers, writers and stylists without alienating them.)

Other cuts executives mentioned included magazine promotional items, photo shoots that stretch for several days, the high “kill fees” paid for completed photographs that do not make it into the magazines and the near-daily lunch orders from Balthazar. Another obvious way to cut costs is through layoffs. While Condé Nast has been in a virtual hiring freeze for about a year, with most magazines declining to fill empty positions, no widespread layoffs have been announced.

Some magazines are considering reducing their frequency. However, Ms. Siegel cautioned, this could have long-term effects. “There are very few advertisers that buy 12 issues of a monthly, so does it matter to me that it might be 10? Not in the short term, but it might matter if it affects the overall readership,” for instance, if readers cancel subscriptions because they receive fewer issues, or if measures of readers’ interest in the magazines decline. Condé Nast is a private company and does not publicly report financial results. Maurie Perl, a Condé Nast spokeswoman, declined to comment on the reports.

But a look at some measures suggests how hard the company has been hit.

For instance, while Condé Nast has been moving away from its dependence on newsstand sales, the high-price newsstand copies still bring in significant revenue. But Condé Nast’s newsstand sales brought in $2 million less in the first six months of this year than they did a year earlier, according to Audit Bureau of Circulations data.

That revenue is shared with distributors, and the drop was calculated using newsstand prices for the most recent period. However, every Condé Nast magazine except Bon Appétit increased its subscriptions in the same period.

Still, advertising, where Condé Nast makes most of its money, has been hammered. Condé Nast magazines have lost about 8,000 ad pages through the October issues compared with last year, according to Media Industry Newsletter. Those figures exclude the company’s bridal magazines. That is a decline of about one-third.

Ms. Siegel said some cost controls were appropriate but she hoped they would not affect the quality of the magazines.

“I love their magazines — I think they’re pretty, I like the way they feel, and I think the reproduction is lovely,” she said. “That’s why I would hope that one of the things their consultants will not tell them is to, in any way, diminish the quality of what they’re offering, because that is something that makes those titles valuable.”

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